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Judgment
Dr. S.K. Panigrahi, J.
The Petitioner has filed this petition challenging the order dated 30.03.2017 passed by the Opposite Party No.1 whereby the Opposite Party No.1 has requested that the property bearing No. C-177, Sector-63, NOIDA, District-Gautam Budh Nagar (which is mortgaged with the Petitioner Company since 26.12.2012) may not be transferred without prior permission of the CBI Court or prior intimation to the CBI even though the Petitioner has priority over the same in accordance with Section 31B of the Recovery of Debts and Bankruptcy Act, 1993 and 26E of the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002. At the initial phase of the argument, learned counsel for the Petitioner tried to satisfy this Court regarding maintainability of the present Petition and substantially convinced this Court that this Court is the competent Court to hear the present case as a substantial part of the cause of action is under the jurisdiction of this Court.
I. FACTS OF THE CASE:
Shorn of unnecessary details, the substratum of matter presented before this Court remain that the Opposite Party Nos.2, 3, 4, 5 and 6 approached the Petitioner for availing the facility of mortgage loan vide application form dated 17.12.2012. The Petitioner issued sanction letter dated 22.12.2012 and sanctioned the mortgage loan to the Opposite Party Nos.2, 3, 4, 5 and 6 amounting to Rs.3,00,00,000/- (Rupees Three Crores Only). As a security towards the repayment of the said loan, original title deeds of the property bearing No.C-177, Sector-63, NOIDA, District - Gautam Budh Nagar, Uttar Pradesh were submitted/ given to the Petitioner with an intention to create an equitable mortgage in favour of the Petitioner Company qua the property in question.
The Petitioner Company entered into a Mortgage Loan Agreement dated 26.12.2012 whereby the Opposite Party No. 2 stood as borrower and Opposite Party Nos.3, 4, 5 and 6 stood as co- borrowers. It is pertinent to mention that the property in issue bearing No.C-177, Sector-63, NOIDA, District - Gautam Budh Nagar, Uttar Pradesh was mortgaged with the Petitioner Company as a security to the said loan by the Opposite Party No.3.
The Petitioner Company, after duly complying with the necessary formalities, disbursed the amount of Rs.3,00,00,000/- (Rupees Three Crores Only) to the Opposite Party Nos.2, 3, 4, 5 and 6 which was to be re-paid along with floating rate of interest, in 84 installments of Rs.5,53,947/-(Rupees Five Lacs Fifty Three Thousand Nine Hundred Forty Seven Only) each. The Opposite Party No.3 intimated the New Okhla Industrial Development Authority (NOIDA), Uttar Pradesh seeking the Equitable Mortgage permission qua the property bearing No.C- 177, Sector-63, NOIDA, District - Gautam Budh Nagar, Uttar Pradesh in favor of the Petitioner and vide letter dated 24.12.2012, the New Okhla Industrial Development Authority (NOIDA), Uttar Pradesh granted the permission in favour of the Petitioner for Equitable Mortgage qua the property in issue.
The Opposite Party Nos.2, 3, 4, 5 and 6 failed to adhere to the terms of loan agreement and failed to service the monthly installments of the loan dated 26.12.2012 as per schedule, and despite issuance of repeated reminders/ requests and follow-ups, the Opposite Party Nos.2, 3, 4, 5 and 6 failed to clear the dues of the Petitioner Company. The Petitioner Company issued recall notice dated 19.03.2015 thereby calling upon the Petitioner to pay a sum of Rs.2,70,59,561/- (Rupees Two Crores Seventy Lacs Fifty Nine Thousand Five Hundred Sixty One Only). However, the Opposite Party Nos.2, 3, 4, 5 and 6 failed to repay any amount as per the recall notice.
As a result of the same, the loan account of the Opposite Party Nos.2, 3, 4, 5 and 6 became Non-performing Asset (NPA) on 13.06.2015, in compliance with the directives relating to asset classification issued by the National Housing Bank. The same was duly communicated to the Opposite Party Nos.2, 3, 4, 5 and 6.
Being left with no other remedy, the Petitioner Company was constrained to issue a notice dated 28.06.2016 under Section 13(2) of the Securitization and Reconstruction of Financial Assets and Enforcement of Securities Interest Act, 2002 (SARFAESI Act) to the Opposite Party Nos.2, 3, 4, 5 and 6 thereby calling upon the Opposite Party Nos.2, 3, 4, 5 and 6 to pay the amount of Rs.3,11,08,221/- (Rupees Three Crores Eleven Lacs Eight Thousand Two Hundred Twenty One Only), which was due to the Petitioner Company.
The Petitioner Company initiated proceedings under Section 14 of the Securitization and Reconstruction of Financial Assets and Enforcement of Securities Interest Act, 2002 (SARFAESI Act) for taking possession of the mortgaged property bearing No.C-177, Sector 63, NOIDA, District- Gautam Budh Nagar, Uttar Pradesh and vide order dated 04.12.2018 the learned Additional District Magistrate, NOIDA, District Gautam Budh Nagar, Uttar Pradesh, was pleased to allow the prayer of the Petitioner for providing support in taking actual and physical possession of the property with requisite police assistance.
The Petitioner Company issued notice dated 11.12.2018 to the Opposite Party Nos.2, 3, 4, 5 and 6 for vacation of the premises/ property bearing No.C-177, Sector - 63, NOIDA, District - Gautam Budh Nagar, Uttar Pradesh, in compliance with the order dated 04.12.2018 passed by the learned Additional District Magistrate, NOIDA, District - Gautam Budh Nagar, Uttar Pradesh vide notice dated 02.01.2019, the Petitioner Company informed the Opposite Party Nos.2, 3, 4, 5 and 6 to remove their personal belongings from the property bearing No.C-177, Sector 63, NOIDA, District Gautam Budh Nagar, Uttar Pradesh.
In compliance with the order dated 04.12.2018 passed by the learned A.D.M., NOIDA, the Petitioner Company took over the actual and physical possession of all the piece and parcel of the property on 10.01.2019.
The Petitioner Company issued notice dated 31.01.2019 to the Opposite Party Nos.2, 3, 4, 5 and 6 for the sale of the immovable property bearing No.C-177, Sector - 63, NOIDA, District Gautam Budh Nagar, Uttar Pradesh under Rules 8(6) and 9(1) of the Security Interest (Enforcement) Rules, 2002.The Petitioner duly informed the Opposite Party Nos.2, 3, 4, 5 and 6 as well as the general public through advertisement published in the national Newspapers dated 31.01.2019 that the proposed sale of the property would take place on 05.03.2019.
The bids were invited for the auction/ sale of the property bearing No.C-177, Sector-63, NOIDA, District - Gautam Budh Nagar, Uttar Pradesh which was proposed to take place on 05.03.2019. Vide letter dated 05.03.2019, the Petitioner Company accepted the bid of the highest bidder for an amount of Rs.5,01,51,000/-(Rupees Five Crores One Lac Fifty One Thousand Only) and received the part payment which was equivalent to 25 % of the sale amount i.e. Rs.1,25,88,750/- and rest of the amount was to be paid within 30 days.
However, the Opposite Party No.1 vide order dated 30.03.2017 requested for stopping the transfer of properties registered against Sai Prakash Group of Companies on the ground that the property was brought out of illegal proceeds and that the company had collected major amount in crores from the general public.
II. SUBMISSIONS ON BEHALF OF THE PETITIONER:
It is submitted by the learned Counsel for the Petitioner that it was the duty of the Opposite Party No.1 to inform the Petitioner Company regarding the letter dated 30.03.2017, as the property was already mortgaged with the Petitioner Company since 26.12.2012. Because, whilst exercising its powers as enunciated under various statutes, the Opposite Party No.1 has wrongly requested to the OSD (Industries), Noida that the Property bearing No.C-177, Sector-63, NOIDA, District - Gautam Budh Nagar, Uttar Pradesh, inter-alia, may not be transferred to any other person/ entity, without prior permission of the CBI Court or prior intimation to the CBI. Permission to mortgage, sale, change in constitution or transfer of the aforesaid property may not be given.
Further, the Petitioner is a Secured Creditor and is entitled to priority over all other debts and all revenues, taxes, cesses and other rates payable to the Central Government or State Government or Local Authority in view of the amended provisions of Section 26E of the SARFAESI Act, 2002 and Section 31B of the Recovery of Debts and Bankruptcy Act, 1993 due to Banks and Financial Institutions Act, 1993 as amended by the Enforcement of Security Interest and Recovery of Debts Laws and Miscellaneous Provisions (Amendment) Act, 2016.
Because of the conjoint effect of Sections 31B and 26E of the Recovery of Debts and Bankruptcy Act, 1993 and The Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002, the secured creditor i.e. Petitioner herein shall have priority over the secured asset to satisfy their respective dues which shall prevail over and supersede the other debts Government dues, revenues, taxes, cesses and rates due to the Central Government, State Government and local authorities.
It is further contended by the learned Counsel for the Petitioner that the Petitioner company has, after following the due procedure established by Law, and after duly obtaining the necessary permission(s)/ order(s), took recourse to the remedies available to it in law to recover the public money (which is more than Rs.5,00,00,000/- in this case). Hence, it is clear that there is no lapse on the part of the Petitioner. Moreover, the impugned letter dated 30.03.2017 is in contravention of the settled principle of Law, i.e. "quando aliquid prohibetur, prohibetur at omne per quod devenitur ad illud", which means that what cannot be done directly-cannot be done indirectly. The said principle has been echoed in several judgments of the Supreme Court of India. It is a settled proposition of law that what cannot be done directly, is not permissible to be done obliquely, meaning thereby, whatever is prohibited by law to be done, cannot legally be effected by an indirect and circuitous contrivance of the abovementioned principle of Law.
The loan was sanctioned by the Petitioner on 22.12.2012 to the Opposite Party No.2 to 6, whereas, it is an admitted case of the CBI that the case against the Opposite Party No.2 and 4 was registered only on 05.06.2014. Further, there is no document in support of the contention that the property was purchased by the Opposite Party No.3 from the funds of the public.
It is contended by the learned Counsel for the Petitioner that the Petitioner Company has bonafidely disbursed the loan and on the basis of representation made by Naina Telesystems Private Limited, the Opposite Party No.3 acting through its Directors, wherein the said Naina Telesystems Private Limited had represented that it had vide Board Resolution dated 26.12.2012 authorized its Director i.e., Shri Pushpendra Singh Baghel to receive the loan for meeting its financial requirements. In this regard, a disbursement dated 26.12.2012 was also submitted by the Opposite Party Nos.2 to 6 which bears the stamp and signatures of the Director of the Opposite Party No.3
III. SUBMISSIONS ON BEHALF OF THE OPPOSITE PARTYNO.1:
Per Contra, it is submitted by the learned Counsel for the Opposite Party No.1 that the letter dated 30.03.2017 was issued by CBI in order to protect the interest of the investors who had deposited their hard earned money in the schemes of the company and were being cheated by the company. Further, during investigation on money trail aspects of the case, the transfer of funds to the loan account of M/s. Reliance Home Finance Ltd. surfaced. In response to a notice, M/s. Reliance Home Finance Ltd vide its letter dated 06.01.2020 provided documents from which it was ascertained that Shri Pushpendra Singh Baghel (Opposite Party-2) had availed loan from Reliance Home Finance Ltd, Sector-62, Noida. As such, at the time of issue of letter dated 30.03.2017, CBI was not having any knowledge about the loan availed by the accused Puspendra Singh Baghel from Reliance Home Finance Ltd. As such, the Petitioner before going for mortgage of the property should have enquired the status of the property.
It is contended by the learned Counsel for the Opposite Party No.1 that the Petitioner company claimed itself as a secured creditor but it is observed that the company has sanctioned home loan to Shri Pushpendra Singh Baghel(Opposite PartyNo.2) in his personal name by mortgaging the property at Plot No.177, Block-C, Sector-63, Phase-III, Noida which was existing in the name of M/s. Naina Telesystems Pvt. Ltd.. (Opposite PartyNo.3). Further, it is ascertained that the said property was purchased by Sai Prakash group out of the funds illegally and unauthorizedly collected from the public under various deposit schemes of Sai Prakash group. As such, by sanctioning this loan, M/s. Reliance Home Finance Ltd. indirectly helped Shri Pushpendra Singh Baghel (prime accused of the case) in channelizing the illegal collection of public deposit for his own use. Therefore, M/s. Reliance Home Finance Ltd. had not followed due procedure established by law in sanctioning the home loan.
IV. ANALYSIS AND REASONING:
From a bare perusal of the pleadings of the parties, it can be ascertained that the loan was sanctioned on 22.12.2012 and the mortgage loan agreement was executed on 26.12.2012 and admittedly, even as on the present date, there is no order of provisional attachment under PMLA, 2002. In absence of order of attachment under Section 5 of PMLA, 2002, it cannot be construed that the property in question has been brought out of illegal proceeds.
In the case of The Deputy Director Directorate of Enforcement Delhi and Ors. vs. Axis Bank and Ors 259 (2019) DLT 500, the Delhi High Court has observed:
“Situation may also arise, as seems to be the factual matrix of some of the cases at hand, wherein a secured creditor, it being a bonafide third party claimant vis-a-vis the alternative attachable property (or deemed tainted property) has initiated action in accordance with law for enforcement of such interest prior to the order of attachment under PMLA, the initiation of the latter action unwittingly having the effect of frustrating the former. Since both actions are in accord with law, in order to co-exist and be in harmony with each other, following the preceding prescription, it would be appropriate that the PMLA attachment, though remaining valid and operative, takes a back-seat allowing the secured creditor bonafide third party claimant to enforce its claim by disposal of the subject property, the remainder of its value, if any, thereafter to be made available for purposes of PMLA.”
Section 26E of the SARFAESI Act, 2002 and Section 31B of the Recovery of Debts due to Banks and Financial Institutions Act, 1993 as amended by the Enforcement of Security Interest and Recovery of Debts Laws and Miscellaneous Provisions (Amendment) Act, 2016 are quoted hereinunder for ready reference:
"26E. Priority to secured creditors. Notwithstanding anything contained in any other law for the time being in force, after the registration of security interest, the debts due to any secured creditor shall be paid in priority over all other debts and all revenues, taxes, cesses and other rates payable to the Central Government or State Government or local authority."
31B. Priority to secured creditors. Notwithstanding anything contained in any other law for the time being in force, the rights of secured creditors to realize secured debts due and payable to them by sale of assets, over which security interest is created, shall have priority and shall be paid in priority over all other debts and government dues including revenues, taxes, cesses and rates due to the Central Government, State Government or local authority.”
A bare reading of the above provisions of law makes it abundantly clear that the said provisions are quite analogous though they are under two different legislations. Section 26E of the Act begins with 'non obstante' clause and stipulates that after registration of the security interest, the debts due to any secured creditor shall be paid in priority over all other debts and all revenues, taxes, cesses and other rates payable to the Central Government or State Government or local authority.
It is undisputed fact that in the instant case, the property bearing No.C-177, Sector-63, Noida, District Gautam Budh Nagar, subsequently mortgaged by Opposite Party, No.2 was purchased much prior to the period when the facility of loan was sanctioned to the borrowers. The Banks while rendering the facilities were bonafide parties. It is not the case of the Opposite Parties that the property was purchased after the loan was obtained. The Appellant Banks, admittedly, are not involved in the scheduled offence. There is no criminal complaint under any schedule offence or PMLA pending against the Bank. The Opposite Party No.1 has not fulfilled its duty of carrying out a thorough investigation and moreover, has not obtained provisional attachment order under Section 5 of PMLA, 2002. It has merely taken hold of such properties which were already mortgaged and held as securities with the Banks against the loans granted by them. Moreover, with the registration of the security interest with the CERSAI on 25.10.2017, coupled with the absence of order of attachment, the claim of the Opposite Party No.1 becomes subservient to the right of the secured creditor.
The Full Bench of the Madras High Court while acknowledging the amount of losses suffered by the Banks and while approving the latest amended Section 31B of the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 has held in the case of The Assistant Commissioner (CT), Anna Salai-III Assessment Circle Vs. The Indian Overseas Bank and Ors (2016) 6 CTC 769 that:
“There is, thus, no doubt that the rights of a secured creditor to realise secured debts due and payable by sale of assets over which security interest is created, would have priority over all debts and Government dues including revenues, taxes, cesses and rates due to the Central Government, State Government or Local Authority. This section introduced in the Central Act is with ''notwithstanding'' clause and has come into force from 01.09.2016. Further it was also held that the law having now come into force, naturally it would governthe rights of the parties inrespect of even a lis pending.”
A Full Bench of the Madras High Court in the case of UTI Bank Ltd. Vs. Dy. Commissioner Central Excise 2006 SCC Mad 1182, while dealing with a similar issue has held that:
“25. In the case on hand, the petitioner Bank which took possession of the property under Section 13 of the SARFAESI Act, being a special enactment, undoubtedly is a secured creditor. We have already referred to the provisions of the Central Excise Act and the Customs Act. They envisage procedures to be followed and how the amounts due to the Departments are to be recovered. There is no specific provision either in the Central Excise Act or the Customs Act, claiming "first charge" as provided in other enactments, which we have pointed out in earlier paragraphs.
In the light of the above discussion, we conclude,
(i) Generally, the dues to Government, i.e., tax, duties, etc. (Crown's debts) get priority over ordinary debts.
(ii) Only when there is a specific provision in the statute claiming "first charge" over the property, the Crown's debt is entitled to have priority over the claim of others.
(iii) Since there is no specific provision claiming "first charge" in the Central Excise Act and the Customs Act, the claim of the Central Excise Department cannot have precedence over the claim of secured creditor, viz., the petitioner Bank.
(iv) In the absence of such specific provision in the Central Excise Act as well as in Customs Act, we hold that the claim of secured creditor will prevail over Crown's debts.
In view of our above conclusion, the petitioner UTI Bank, being a secured creditor is entitled to have preference over the claim of the Deputy Commissioner of Central Excise, first Respondent herein.”
In view of the above judgments regarding overriding effect in favour of Petitioner herein, this Court has not gone into other legal issues which are kept open. The CRLMP is allowed and the impugned order dated 30.03.2017 passed by the Opposite Party No.1, to the extent of the properties mortgaged with the Petitioner, is set aside.
Accordingly, this CRLMP is disposed of being allowed.
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